State slide wipes away jobs

The construction industry is still a mess, and high gasoline prices are starting to hurt retailers, restaurants and hotels.

Bottom line: California's highest unemployment rate in five years.

Statewide unemployment jumped six-tenths of a percentage point in May to 6.8 percent, the Employment Development Department said Friday.

Sacramento-area unemployment rose three-tenths of a point to 6.4 percent.

"The California economy is sputtering," said Howard Roth, chief economist at the state Department of Finance.

Roth said he believes the May unemployment numbers will probably be revised downward later. But he said the state clearly is having problems.

The housing market is in its third year of decline and remains the single largest source of job losses. But economists are increasingly concerned about consumer spending and how it's being squeezed by gas, which is costing a statewide average of $4.61 a gallon.

Retailers across California have eliminated more than 20,000 jobs in the past year. In greater Sacramento, 900 jobs have disappeared at hotels, restaurants and food-service companies since 2007.

"Leisure and hospitality – that's your discretionary spending as a consumer," said Jeff Michael, director of the Business Forecasting Center at the University of the Pacific. "Those are the kinds of areas that are taking a hit from the gas price surge."

Brookfields restaurants, a three-unit chain in Sacramento, has eliminated 25 jobs since last year, or about 10 percent, through a combination of layoffs and attrition. All three restaurants are near highways, and owner Sam Manolakas said the high cost of fuel is hurting his tourist trade.

"With the gas prices, I don't think people are going to be traveling like they're usually traveling, up and back to Tahoe," he said. "Most people are just doing a budget-balancing act and saying, 'We can't go out to eat as much as we used to.' "

Michael said California appears to be in a recession, albeit a mild one. Other economists say the state is still not in a recession, defined as a shrinking of economic activity.

The statewide unemployment rate is the highest since 2003, when California was still recovering from the 2001 recession. Sacramento unemployment is the highest since early 1997, when the region was still shrugging off the effects of the early 1990s downturn.

At 6.8 percent, the unemployment rate has increased 1.5 percentage points in a year. Only Alaska, Michigan, Mississippi and Rhode Island have higher unemployment rates.

Across the state, payrolls shrank by 10,900 jobs last month. Job losses for the past two months total 20,000.

Overall, the state has lost about 49,000 jobs since last July, Roth said. He said those losses are small compared with previous recessions.

Friday's report prompted Gov. Arnold Schwarzenegger to repeat his call to accelerate the expenditure of $37 billion in infrastructure spending approved by voters in 2006. In a press release, he said the money should be "pumped into the economy now when we need it most."

The Sacramento area added 1,600 jobs in May, mostly for seasonal reasons. About half the hiring was in agriculture.

But serious weaknesses remain, especially in construction. Contractors in Sacramento added 400 jobs last month, little for this time of year. Between 2003 and 2007, the area's contractors hired an average of 2,300 workers each May, said Diane Patterson, labor market consultant at EDD.

Sacramento's construction payrolls are nearly 10 percent smaller than a year ago. Total payrolls are 0.4 percent smaller than in 2007.

The big question is whether the rest of the economy will go the way of the housing market. So far, the worst of the job losses remain mostly confined to housing-related industries, said Michael Bernick, former EDD director and now a senior fellow at the Milken Institute think tank in Santa Monica.

"The bottom has not yet fallen out," he said.

The May numbers do suggest gas prices are starting to worsen the economic downturn, especially in the leisure and hospitality sector, which includes hotels and restaurants. Although the employment numbers have increased slightly statewide, Sacramento hospitality businesses have been cutting back. The losses include 300 hotel jobs since last year.

"Conventions are still happening, annual meetings are still happening, but what's happening is that the company that used to send five delegates is now sending one," said Mike Testa, spokesman for the Sacramento Convention & Visitors Bureau.

Testa said tourism officials believe Sacramento will bear up fairly well. Most people won't give up their vacations, although "shorter, quicker trips seem to be what's going on this summer," he said.

At Rudy's Hideaway restaurant in Rancho Cordova, co-owner Steven Ryan said business is off about 10 percent. He's eliminated six jobs through attrition, leaving him with 32 employees.

"It's like there's not as many cars on the road, there's a whole feeling there," he said.

From his perch in the Folsom Boulevard commercial district, Ryan gets a steady diet of that negative feeling at lunchtime. That's when workers and managers stream in from the neighboring furniture, car and boat dealers. The talk naturally turns to the economy.

"Every conversation starts with, 'How's it going?' It just kind of wears on everybody," he said. "I try not to initiate the conversation."

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